ECON 190 - Practice Test 3

*A perfectly competitive firm* A) sells a product that has perfect substitutes. B) has a perfectly inelastic demand. C) has a perfectly elastic supply. D) Answers A and B are correct. E) Answers A and C are correct.

A

*In the long run, a perfectly competitive firm will* A) be able to make an economic profit. B) produce but incur an economic loss. C) make zero economic profit. D) not produce and will incur an economic loss equal to its total fixed cost. E) not produce but not incur an economic loss.

C

*If new firms enter a perfectly competitive industry, the market supply* A) does not change. B) becomes more price elastic. C) becomes more price inelastic. D) increases. E) decreases because each firm produces less than before the entry.

D

*If you make dinner for yourself, * A) the market value of your dinner is added to GDP. B) your service in preparing the meal is valued at a cook's wage and added to GDP. C) none of what you bought to prepare for dinner is included in GDP. D) only the market value of ingredients that you purchased this year is added to GDP. E) the difference between the cost of the ingredients that you purchased this year and the market value of the dinner is added to GDP.

D

*Investment is defined as the purchase of* A) any financial asset only. B) additions to inventories only. C) financial assets and inventories only. D) new capital goods and additions to inventories. E) new capital goods but not additions to inventories.

D

*Natural barriers to entry arise when, over the relevant range of output, there* A) are diseconomies of scale. B) are constant returns to scale. C) are several firms who produce at the lowest average cost. D) are economies of scale. E) is one firm that owns a key natural resource.

D

*The table gives data for a nation. What is the amount of the country's GDP?* A) $6,000 billion B) $6,200 billion C) $6,600 billion D) $6,900 billion E) $5,800 billion

B

*Gross Domestic Product is equal to the market value of all the final goods and services ________ in a given period of time.* A) produced within a country B) consumed within a country C) consumed by the citizens of a country D) produced by the citizens of a country E) produced and consumed within a country

A

*How are final goods and services valued when measuring nominal GDP?* A) at current market prices B) at base year prices C) at foreign exchange parity D) at factor market prices E) at producer cost

A

*In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?* A) the profit-maximizing level of output B) how much to spend on advertising and sales promotion C) what price to charge buyers for the product D) whether or not to enter or exit an industry E) whether or not to change its plant size

A

*The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the price per pillow is* A) $70. B) $60. C) $40. D) $100. E) $30.

A

*The marginal revenue curve for a perfectly competitive firm is * A) horizontal. B) vertical. C) upward sloping. D) downward sloping. E) a straight line coming out of the origin with a 45 degree slope.

A

*The perfectly competitive firm's supply curve is its* A) marginal cost curve above the average variable cost curve. B) marginal cost curve below the average variable cost curve. C) average variable cost curve above the marginal cost curve. D) average total cost curve above the marginal cost curve. E) marginal revenue curve above the average total cost curve.

A

*Which of the following correctly describes a final good? * i. A final good is bought by its final consumer. ii. A final good can be used by a firm as a component of another good or service. iii. Investment goods cannot be a final good. A) i only B) i and ii C) i, ii and iii D) i and iii E) ii and iii

A

*Which of the following is directly included in the U.S. GDP for 2013?* i. a 2013 Cadillac Escalade produced and sold as a new car in the United States in 2031 ii. tires produced in the United States, purchased by General Motors, and installed on a new Cadillac Escalade sold in 2013 iii. General Motors cars produced in Canada because General Motors is an American corporation A) i only B) ii only C) i and iii D) ii and iii E) i, ii, and iii

A

*With perfect price discrimination, a monopoly can extract the ________ price each customer is willing to pay and thereby obtain the entire ________ surplus.* A) maximum; consumer B) minimum; producer C) maximum; producer D) minimum; consumer E) None of the above answers are correct.

A

*A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the* A) marginal revenue is greater than marginal cost. B) price is at least equal to the minimum average variable cost. C) total fixed costs are less than total revenue. D) marginal cost is minimized. E) price is also less than the minimum average variable cost.

B

*A price-discriminating monopoly charges* A) the same price to every buyer for the same product. B) a different price to different types of buyers for the same product, even though there are no differences in costs. C) a different price to different buyers, because the costs are different. D) different prices to buyers for different products. E) each customer a price that equals the marginal cost of serving that customer.

B

*Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then* A) Arnie's profit decreases. B) consumer surplus decreases. C) Arnie's revenues decrease. D) Arnie's sells fewer tickets. E) Arnie's will see all of his tickets at a single price.

B

*Because perfectly competitive firms are price takers, each firm faces a demand that is* A) perfectly inelastic. B) perfectly elastic. C) highly inelastic but never is it perfectly inelastic. D) unit elastic. E) highly elastic but never is it perfectly elastic.

B

*Each firm in a perfectly competitive industry* A) produces a good that is slightly different from that of the other firms. B) produces a good that is identical to that of the other firms. C) attains economies of scale so that its efficient size is large compared to the market as a whole. D) has control over at least one unique resource to separate themselves from their competitors. E) has an important influence on the market price of the good or service being produced

B

*If a perfectly competitive firm's average total cost is less than the price, then the firm* A) incurs an economic loss. B) makes an economic profit. C) makes zero economic profit. D) makes either zero economic profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price. E) None of the above answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit.

B

*In States where the government runs liquor stores, the monopoly results from* A) economies of scale. B) legal restrictions. C) control of an essential resource. D) patents. E) public fear.

B

*In the short run, a perfectly competitive firm* A) can make only zero economic profit. B) can possibly make an economic profit or possibly incur an economic loss. C) produces the level of output that sets the average total cost equal to the market price. D) can vary all its inputs. E) can change only its fixed inputs.

B

*Normal profit is* A) the same thing as economic profit. B) the return to entrepreneurship. C) total revenue minus the total opportunity cost of production. D) the point of profit when total revenue is maximized. E) part of the firm's total revenue.

B

*One requirement for an industry to be perfectly competitive is that in the industry there * A) are a few firms who control the market. B) are many firms for whom the efficient scale of production is small. C) is one firm that sells a product with no close substitutes. D) are many firms selling different products. E) is a barrier to entry that makes the entry of new firms difficult.

B

*The demand curve facing a single-price monopoly* A) lies below the marginal revenue curve. B) lies above the marginal revenue curve. C) is the same as only the marginal revenue curve. D) is the same as only the marginal cost curve. E) is the same as both the marginal revenue curve and the marginal cost curve.

B

*The figure above shows a natural monopoly that the government must regulate. If the government uses ________, the firm produces ________ units per week.* A) the HHI; 50 B) an average cost pricing rule; 30 C) rate of return regulation; 40 D) social interest regulation; 30 E) a marginal cost pricing rule; 20

B

*The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, he produces ________ pillows per hour.* A) 1,000 B) 3,000 C) 4,000 D) 0 E) 2,000

B

*The income approach to measuring GDP is based on summing* A) the production of each industry. B) wages, interest, rent, and profits. C) the values of final goods, intermediate goods and services, used goods, and financial assets. D) consumption expenditure, investment, government expenditures on goods and services, and net exports of goods and services. E) consumption expenditure and wages.

B

*The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________.* A) downward sloping; downward sloping B) downward sloping; horizontal C) horizontal; downward sloping D) horizontal; horizontal E) downward sloping; upward sloping

B

*The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is nominal GDP in 2009?* A) $410 B) $450 C) $900 D) $550 E) $460

B

*To calculate GDP it is necessary to* A) add the total amounts of all the goods produced. B) use the market price to place a dollar value on each good produced. C) use production cost to place a dollar value on all goods produced. D) use the average market price over the last five years to place a dollar value on all goods produced. E) average the cost of producing a good with the price of the good to place a dollar value on all goods produced.

B

*When a firm adopts new technology, generally its* A) cost curves shift upward. B) cost curves shift downward. C) cost curves are unaffected. D) supply curve shifts leftward. E) production permanently decreases.

B

*A market in which many firms sell identical products is* A) a monopoly. B) an oligopoly. C) only perfectly competition. D) only monopolistic competition. E) both perfect competition and monopolistic competition.

C

*A perfectly competitive firm definitely makes an economic profit in the short run if price is* A) equal to marginal cost. B) equal to average total cost. C) greater than average total cost. D) greater than marginal cost. E) greater than average variable cost.

C

*A perfectly competitive market arises when* A) the market demand is small relative to the output of a firm. B) there are many buyers but few sellers. C) the market demand is very large relative to the output of one seller. D) a firm has control over a unique resource. E) each of the many firms produces a slightly different product.

C

*A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is* A) a consumption expenditure. B) an investment. C) an intermediate good. D) an example of government expenditures on goods and services. E) part of net exports if the fish was caught beyond the U.S. border.

C

*Adding wages, interest, rent, and profits yields* A) gross domestic product. B) gross domestic product at factor cost. C) net domestic product at factor cost. D) GNP. E) total expenditure.

C

*Compared to a perfectly competitive market, a single-price monopoly sets* A) a lower price. B) the same price. C) a higher price. D) a price that might be higher, lower, or the same depending on whether the monopoly's marginal revenue curve lies above, below, or on its demand curve. E) a price that might be higher, lower, or the same depending on whether the monopoly's marginal cost curve lies above, below, or on its marginal revenue curve.

C

*For a perfectly competitive firm, marginal revenue is* A) less than the price. B) greater than the price. C) equal to the price. D) equal to the change in profit from selling one more unit. E) undefined because the firm's demand curve is horizontal.

C

*For a perfectly competitive firm, profit maximization occurs when output is such that* A) total revenue (TR) is maximized. B) total cost (TC) is minimized. C) marginal revenue (MR) = marginal cost (MC). D) average total cost (ATC) is minimized. E) total revenue (TR) equals total cost (TC).

C

*If a firm does not sell all of the goods that it produces in a given time period, then the goods* A) do not count in GDP ever. B) do not count in GDP for that time period but always count next period. C) count positively in GDP as inventory investment. D) count negatively in GDP as inventory investment. E) count in GDP the period they are sold to the final user.

C

*If a firm shuts down, it* A) makes zero economic profit. B) incurs an economic loss equal to its total variable cost. C) incurs an economic loss equal to its total fixed cost. D) makes a normal profit. E) might make an economic profit, zero economic profit, or incur an economic loss.

C

*If perfectly competitive lawn care firms are making an economic profit, then* A) wages will be bid up until the economic profit are gone. B) the firms must be superior and will continue to make an economic profit. C) new firms will enter the industry. D) they are not equating marginal revenue to marginal cost. E) government regulation will be imposed to decrease their profit.

C

*In the circular flow, how are the "value of production," "income," and "expenditures" related?* A) They have no relationship to each other. B) Once tax payments are subtracted at each stage, they are equal. C) Expenditures on GDP equals the value of production which equals income. D) Once net exports of goods and services are subtracted from GDP, all three are equal. E) Value of production always equals income but expenditures is smaller because households save some of their income and do not spend it.

C

*Last year U.S. net exports of goods and services was negative. This fact means that last year* A) there was an error made when calculating net exports of goods and services for the United States. B) the value of U.S. exports was greater than the value of U.S. imports. C) the value of U.S. exports was less than the value of U.S. imports. D) U.S. consumption expenditure plus investment was less than the value of exports plus the value of imports. E) U.S. consumption expenditure plus investment plus government expenditures on goods and services was less than the value of exports plus the value of imports.

C

*Measuring total production by valuing items at their market value allows us to* A) separate the value of different goods with identical prices. B) separate the value of different goods with different prices. C) add together the value of different goods that have different prices. D) add together the value of identical goods that have identical prices. E) ignore the problem that goods and services differ in how long they last.

C

*Net exports of goods and services are defined as the* A) value of the goods we sell to foreigners. B) income we receive from selling goods to foreigners. C) value of exports minus the value of imports. D) value of exports minus the income we receive from foreigners. E) value of exports plus the income we receive from foreigners.

C

*Recently, the government made adjustments to how GDP is calculated that included placing software purchases into the category of* A) intermediate goods because software is not a final good. B) inventory and now software purchases are not directly counted as part of GDP. C) investment and now directly counts software purchases as part of GDP. D) net exports of goods and services because most software is written abroad. E) net operating surplus.

C

*The expenditure approach to measuring GDP is done by using data on only* A) consumption expenditure. B) consumption expenditure and investment. C) consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services. D) consumption expenditure, investment, and government expenditures. E) wages, rent, interest, and profit.

C

*The figure above shows a natural monopoly that the government must regulate. Which of the following pairs most likely results in similar outcomes?* A) marginal cost pricing and rate of return regulation B) marginal cost pricing and a two-part tariff C) average cost pricing and rate of return regulation D) predatory pricing and price caps E) marginal cost pricing and price cap regulation

C

*The firm's over-riding objective is to* A) earn a normal profit. B) maximize normal profit. C) maximize economic profit. D) maximize total revenue. E) avoid an economic loss.

C

*The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2010. What is real GDP in 2010?* A) $530 B) $1080 C) $510 D) $210 E) $300

C

*To measure GDP by using the income approach, we must add all incomes and then ________ depreciation and ________ net taxes less subsidies.* A) neither add nor subtract; add B) add; neither add nor subtract C) add; add D) add; subtract E) subtract; add

C

*We know that a perfectly competitive firm is a price taker because* A) its MC curve slopes upward. B) its ATC curve is U-shaped. C) its demand curve is horizontal. D) MC and ATC are equal at the profit-maximizing amount of output. E) it has no supply curve.

C

*Which of the following is a characteristic of monopoly?* A) The firm faces competition from many other firms. B) The firm produces a product that has many close substitutes. C) There are barriers to enter the market. D) The firm's demand is perfectly elastic. E) The firm produces a product identical to that produced by its many competitors.

C

*Which of the following is the best example of a natural monopoly?* A) ownership of the only ferry across Puget Sound for twenty miles B) the United States Postal Service C) the cable television company in your hometown D) owning the only licensed taxicab in town E) producing a patented drug

C

*A perfectly competitive firm will shut down when the price is just below the minimum point on the* A) average fixed cost curve. B) average total cost curve. C) marginal cost curve. D) average variable cost curve. E) marginal revenue curve.

D

*A permanent decrease in demand definitely* A) shifts a firm's average total cost curve downward. B) creates diseconomies for individual firms. C) lowers the market price. D) decreases the number of firms in the industry. E) shifts a firm's average total cost curve upward.

D

*A monopoly is a market with* A) many suppliers each producing an identical product. B) no barriers to entry. C) many substitutes. D) one supplier. E) many suppliers each producing a slightly different product.

D

*One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $15. A second bag of coffee is sold directly to Joan for $7, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee?* A) $7 B) $14 C) $15 D) $22 E) $29

D

*Price discrimination is possible, in part, because* A) costs of production vary as output increases. B) monopolies are regulated. C) monopolies don't profit maximize. D) the willingness to pay can vary among groups of buyers. E) monopolies face horizontal demand curves.

D

*The above figure shows a perfectly competitive firm. If the market price is $5, the firm* A) might shut down but more information is needed about the AVC. B) is making an economic profit. C) is making zero economic profit. D) will immediately shut down. E) will not shut down.

D

*The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the difference between marginal cost and price* A) $0. B) $40. C) $60. D) $30. E) $20.

D

*The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the price is ________ per pillow and the marginal cost is ________ per pillow.* A) $60; $60 B) $60; $40 C) $70; $60 D) $70; $40 E) $100; $40

D

*The total production within an economy is measured as* A) Gross Home Product. B) Total Domestic Output. C) Annual Production Value. D) Gross Domestic Product. E) Total Annual Output.

D

*When new firms enter the perfectly competitive Miami bagel market, the market* A) supply curve shifts leftward. B) supply curve does not change. C) demand curve shifts rightward. D) supply curve shifts rightward. E) demand curve shifts leftward.

D

*For a perfectly competitive firm, the market price of a good is* A) a given which the firm cannot change. B) determined by the firm in order to maximize its profit. C) equal to the firm's marginal revenue. D) Answers A and B are correct. E) Answers A and C are correct.

E

*Which of the following would be included in Germany's GNP?* A) the production of BMWs (made by a German-based company) in South Carolina B) the production of Michelin tires made in Germany by a French company and then sold directly to French consumers C) the production of BMWs in Germany D) the production of Michelin tires made in France by a French company and then sold to BMW in Germany for use in BMW cars E) Answers A and C are correct.

E